Spiceworks' Success Proves Ad-Supported SaaS Can Succeed

by: Jeffrey M. Kaplan

Many people confuse Software-as-a-Service (SaaS) with ad-supported online services.

They are independent ideas, but can be combined to quickly entice potential customers to try a web-based service without making a financial commitment.

In most cases, the vendor’s goal is to convert as many of these free trial users into paying customers as quickly as possible. Given the challenges associated with this conversion process in nearly every segment of the cyberworld, it isn’t surprising that most SaaS industry observers question the viability of using this tactic in the B2B market, especially among SaaS solutions geared toward IT managers.

Spiceworks is proving the cynics wrong.

The company offers web-based network monitoring tools for corporate IT and managed service providers (MSPs). Users can sign up for free if they don’t mind ads intermixed with their online tools. They can subscribe to a more full-featured, ad-free service if they prefer. Many of Spiceworks’ users have been willing to accept the free service because the ads promote relevant and complementary IT management tools and services.

As a result, Spiceworks claims to have more than 850,000 users in total, across 196 countries, and says its customer base is growing at the rate of over 1,000 new IT users per day. The company also believes its solutions are now installed in over 25 percent of all businesses with more than 100 employees.

With this type of customer base and growth, it isn’t surprising that Spiceworks calls itself “iTunes of Network Management” and calls its business model, “Social IT”.

With this kind of following, or ‘community’, it is easy to understand why a growing number of technology companies like Cisco (NASDAQ:CSCO), Citrix (NASDAQ:CTXS), Dell (NASDAQ:DELL) and Intel (NASDAQ:INTC) are offering plugins for Spiceworks’ platform.

And, this week the company raised another $16 million in series C funding led by Institutional Venture Partners (IVP), joining previous investors Austin Ventures, Maple Investments and Shasta Ventures.

These are impressive backers — IVP has also backed Twitter, MySQL, Netflix, Business.com and Zynga. Maples Investments has backed Digg, Solarwinds and Twitter. And, Shasta Ventures supported Mint.com, Lithium and Logoworks.

A rapidly growing customer base, expanding partner ecosystem and quality investors clearly demonstrate that a properly targeted, ad-supported SaaS model can work in the B2B world.

Spiceworks’ success also shows how IT professionals are getting more comfortable with SaaS-based management solutions.